Taking your tax-free cash up front with The People’s Pension

One way of taking your pension pot a bit at a time is to take your tax-free cash up front – and then you can take the rest of your money bit by bit over time or leave it invested for the time being if you want.

So you take your 25% tax-free cash at the start, and move the remaining 75% into a separate account. Then, each time you take money out of that account, you’ll pay tax on the full amount of each lump sum.

This method of taking your pension pot a bit at a time is often called ‘flexi-access drawdown’.

The People’s Pension flexi-access drawdown account

Different providers have different rules around ‘flexi-access drawdown’.

To take this option with The People’s Pension, you need to have more than £10,000 in your pension pot with us to get you started.

And with us, you must take the full 25% tax-free cash to begin with.

Plus, the rest of your pension pot must be moved into a flexi-access drawdown account – it’s not possible to move just part of it.

You’ll need to carefully plan your withdrawals each time you make one. Our flexi-access drawdown account isn’t designed to provide you with a regular income.

And the money in your flexi-access drawdown account will continue to be invested, under the same investment settings as your pension pot with us.

So, as with every investment, the value of your flexi-access drawdown account can go up and down. And it’s important that you regularly review how your money is invested to make sure the selection is right for you.

How does it work?

The People's Pension flexi-access drawdown account rules

How do I access my flexi-access drawdown account?

Once you’ve set up your flexi-access drawdown account, you’ll be able log in to your Online Account to check your balance.

And you can make withdrawals through your Online Account too. You’ll just need to fill out an online form to request a lump sum from your flexi-access drawdown account.

Or you can give us a ring – you don’t have to do it online if you don’t want to.

How many lump sums can I take?

You can withdraw up to 4 lump sums per tax year free of charge. You can make more withdrawals after that – but we may* charge you per withdrawal once you go over 4. Our flexi-access drawdown account isn’t designed to provide you with a regular, ongoing income. And, you won’t be able to make more than 1 withdrawal per tax month. These limits include the tax-free cash you take at the beginning, as well as taxed withdrawals you take from the remaining amount once it’s been moved into your flexi-access drawdown account. So if for example, you take your tax-free cash from your pension pot, and then later on in the same tax year, you decide to make a withdrawal from your flexi-access drawdown account – that will count as 2 withdrawals. That means you may only be able to make a further 2 withdrawals free of charge within that tax year. It’s also worth noting that any withdrawals you make taking your tax-free cash gradually will count as 1 of your 4 free withdrawals per tax year too. More about taking your tax-free cash gradually

*No charges are currently applied for taking lump sums from your pension pot. However, the right is reserved to impose charges for taking more than four lump sums in a tax year. You would be notified in advance if any such charges were to be introduced.

How much can I take at a time?

You must take a minimum of £2,000 each time you take a lump sum from your flexi-access drawdown account with The People’s Pension – you can’t take less than £2,000 at a time.

But there’s an exception if you get to a point where you’re left with less than £2,000 in your flexi-access drawdown account. You can request a final withdrawal of what’s left in your account even if it’s less than £2,000. The full amount will be taxed just like your other flexi-access drawdown withdrawals.

If you’ve no more money left in your pension pot with The People’s Pension after this final withdrawal, your flexi-access drawdown account will be closed.

Why have we set up our flexi-access drawdown account like this?

Some providers offer a flexible retirement income plan through flexi-access drawdown. This normally involves setting up regular payments, which are paid into your bank account by direct credit. But the income payments stop when your money runs out. And because it’s paid to you automatically, your money could run out without you realising it’s getting low. With our flexi-access drawdown account, you can keep an eye on your balance through your Online Account. And you have to consciously log in and request a lump sum in order to take any money out. This gives you the opportunity to think carefully each time you make a withdrawal – about how much you want to take out and how long it needs to last. With any flexi-access drawdown arrangement, if you take too much too quickly, your money could run out.

What if I want to continue saving as well?

If you’re still going to be working after you start taking money from your pension pot, you might want to continue saving into a pension to make the most of your employer’s contributions. Or even if you’re not going to be working, you might want to continue making your own contributions. Any future contributions paid into your account with The People’s Pension won’t go straight into flexi-access drawdown. Instead, your money will go into your pension pot with us, and start building up your pot again. So it’ll be separate from your money in your flexi-access drawdown account with us – and you’ll be able to keep an eye on both balances through your Online Account. Then, once you’ve built your pot back up to £2,000 or more – you can take your 25% tax-free cash from it and move the rest over to your flexi-access drawdown account if you want to. More about continuing to save

What happens to the money in my flexi-access drawdown account if I die?

You can nominate someone (or more than one person, or an organisation) to receive your pension savings if you die – called your ‘beneficiary’. If you’ve already nominated a beneficiary for your pension pot with The People’s Pension, the same beneficiary will be registered for your flexi-access drawdown account with us. With The People’s Pension, our trustee will consider your wishes and any money we pass on to your beneficiary would be paid to them as a single lump sum – we can’t pay it to them as an income, or carry on investing it on their behalf. More about what happens to your pension savings when you die

Can I mix this option with other ways of taking my pension pot?

Once you’ve moved your pot into a flexi-access drawdown account, you can leave it invested or take withdrawals from it. You should continue to monitor how your money is invested in the available investment funds. You don’t have to stay in the flexi-access drawdown account, or with the same provider, for the rest of your retirement. You could choose to transfer your pot to another flexi-access drawdown provider, or buy a guaranteed income. More about mixing your options

Comparing with other providers

Different providers offer different versions of this option, so you might want to shop around to find the best deal for you. There’s a lot of jargon in the pensions industry, and we understand that this can make it difficult to compare your options across different providers – because unfortunately not everyone uses the same terminology. To make it easier for you to compare, here’s a few different ways this option is often described:

What are the risks?

There’s a risk you won’t have enough money to live off in your retirement – or that your money could run out too soon if you take too much too quickly. So you need to plan carefully and work out how much you’ll need.

There’s a risk you could pay more tax than you planned for. So make sure you understand the tax consequences and consider your personal tax circumstances.

If you get any means-tested benefits, taking your pension savings could affect your entitlement to these. Find out more about this on the government website.

If you have any unsecured debts or creditors, the money you take from your pension savings may be available to your creditors to satisfy any debts you have.

There’s a chance there’s a better deal out there for you. So you should shop around and understand all your options. But make sure you avoid pension scams too.

When you take your first taxed lump sum (after your initial 25% tax-free cash), you’ll have a reduced money purchase annual allowance. Find out more about this if you plan on continuing to save.

Before you take your pension pot a bit at a time with The People’s Pension, we recommend you read:

How do I choose this option with The People's Pension?

If you’re ready to take your pension pot a bit at a time (and as long as you’re 55 or over) – the easiest way to set it up and request your first bit of money is through your Online Account. Once you’re logged in, you can click the green ‘Claim’ button on the homepage to start your online claim. Or if you’d prefer not to do it online, get in touch.